In the financial market, gold is one of the most stable and safe assets that one can invest in. Historically, it has proven itself to weather the storm of financial crisis better when compared to other assets like stocks. This is one of the reasons many investors a drawn to the metal.
Its stability, along with its impressive history and significance in the financial market has led many investors into diversifying their portfolios with this precious metal. Although some people argue that since it no longer backs any currency globally, it may not be as valuable as it was in the past. However, multiple evidence points to the fact that the metal is just as relevant and important today as it was in the early 1790s when the bimetallic standard was introduced. Visit https://money.usnews.com/investing/investing-101/articles/why-diversification-is-important-in-investing to learn more about the importance of diversification.
When it comes to gold investment, the question should not be “should I invest in gold”, but rather, “how and when should I invest in gold?” Like we have astutely pointed out earlier, this asset handles financial crises better than most others. In fact, many investors see it as a hedge against inflation.
In case you are wondering, an ounce of gold from say, 50 years ago still has the same purchasing power, if not greater. In fact, in 2005, gold sold for $435 per ounce and in 2014, that price had gone up to a staggering $1,180 for that exact weight. The same cannot be said for paper money as its value can easily be scrapped by inflation. In this article, we will look at several ways you can invest in this precious metal.
Own it Physically: Buy Bullions and Coins
Many benefits come with physically owning this yellow stone. One very notable one is that it is inflation-proof and maintains its purchasing power. For example, if you left $5,000 in the bank from the year 2000, its value would have dropped significantly today. But if you had $5,000 worth of gold may be in bars or coins, its value would have nearly tripled today.
This is because like we said earlier, inflation greatly impacts paper money and financial crisis affects other assets like stocks. Its value will never come to zero no matter how bad the economy gets. In fact, its value may as well increase during such times because more people would turn to it.
Also, physical gold requires almost no maintenance and there are less headaches from tax. It can easily be stored privately or at a professional storage facility for a fee. Lastly, the supply of this precious metal is limited and demand for it is steadily rising. There will come a time when people would be willing to pay as much as $2,500 per ounce compared to the price of $1,750 it is being sold for at the time of writing this article.
Many companies deal in this metal. Before you patronize anyone, you must do a bit of research to know how reputable they are in the market. Company reviews like the Oxford Gold Group review provide valuable insights into companies that deal in precious metals.
Gold-backed Exchange-traded Funds (ETFs)
This is owning gold on paper. If you would prefer some liquidity and cash flow with your investment, then this option is just right for you. These ETFs issue you a certificate of ownership of the metal without actually owning it.
Unlike physical gold that has no liquidity unless when sold, many ETFs pay out monthly or annual dividends to investors. This way, you get to maintain cash flow on your investment. However, this option is not as safe as owning coins and bars. The major problem with ETFs is the issue of counterparty risk.
Many companies that issue out these types of ETFs do not have sufficient gold in their reserves to back up the number of certificates they issue. The implication of this is that they may not be able to fulfill payouts if several investors decide to cash in their certificates during a market crisis. Click here to learn more about ETFs.
Gold Mining Companies
Companies that mine this precious metal issue out shares to investors that are interested in entering the market. Through the shares they issue out, they can raise capital to finance their operations and purchase equipment.
Like any other type of equity shares investment, how the shares perform in the market depends on several factors. One is the performance of the company, its management, and how much profit they are turning in. The capital market can also impact the value of the company’s shares. Conversely, if the company does well, share prices rise, bringing you greater returns on your investment.
Another way you can invest in this precious metal is by buying gold jewelry with artistic value. We should point out that this type of investment is tricky and should only be considered by investors that are quite knowledgeable about jewelry. The cost of acquiring this type of jewelry may exceed the price of the same weight of gold on the market because of the artistic value attached to them.
But, selling them can be really profitable as the value of these pieces of jewelry tend to increase over time, provided that they remain in peak condition. Depending on the reputation of the jewelry maker and the value of other precious gems added to the jewelry, gold jewelry could be resold for as much as three times its original value. This is one way to preserve wealth for younger generations.
There are several sources from which one can purchase this asset. Many banks and other financial institutions sell gold, and one could also get them from a local dealer. There are even companies that sell the metal online and have it safely delivered to the customer’s doorstep.
When buying online or from a local dealer, as we mentioned earlier, do your research to know how reputable they are. You can find reviews of dealers that sell online on their websites. You can also visit their social media to get more info about their credibility and customer satisfaction.